Northrop Grumman 2011 Annual Report Download - page 89

NORTHROP GRUMMAN CORPORATION
Realization of the deferred tax asset is primarily dependent on generating sufficient taxable income in future
periods. The company believes it is more-likely-than-not that all deferred tax assets will be realized, net of any
valuation allowances currently established.
At December 31, 2011, the company has available unused net operating losses that may be applied against future
taxable income in Japan of $16 million that will expire in 2015 through 2018, $23 million in Norway, and $153
million in the United Kingdom that may be used indefinitely. A valuation allowance of $50 million has been
recorded against the tax assets due to the uncertainty of the realization of these net operating losses and other
deferred tax assets in foreign jurisdictions.
Net deferred tax assets as presented in the consolidated statements of financial position are as follows:
December 31
$ in millions 2011 2010
Net current deferred tax assets $ 496 $ 392
Net non-current deferred tax assets 900 628
Total net deferred tax assets $1,396 $1,020
At December 31, 2011, the company completed a comprehensive review of its deferred income tax balances and
determined that certain net deferred income tax assets were overstated and required correction. The company was
able to determine that the overstatement relates to periods prior to January 1, 2007. Management has evaluated the
impact of the overstatement and concluded that the effect of the correction is not material to the company’s
consolidated statements of financial position, results of operations or cash flows for any period presented. In order
to correct the overstatement, the company has reduced the opening retained earnings balance as of January 1, 2007
by $121 million, which reduces opening retained earnings for the year ended December 31, 2009, from the
originally reported amount of $5.6 billion to $5.5 billion.
Foreign Income – As of December 31, 2011, the company had approximately $761 million of accumulated
undistributed earnings generated by its foreign subsidiaries. No deferred tax liability has been recorded on these
earnings since the company intends to permanently reinvest these earnings. Should these earnings be distributed in
the form of dividends or otherwise, the distributions would be subject to U.S. federal income tax at the statutory
rate of 35 percent, less foreign tax credits available to offset such distributions, if any. In addition, such distributions
may be subject to withholding taxes in the various tax jurisdictions.
11. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill and other purchased intangible assets are included in the identifiable assets of the segment to which they
have been assigned. Impairment tests are performed at least annually and more often as circumstances require. Any
goodwill impairment, as well as the amortization of other purchased intangible assets, is charged against the
respective segment’s operating income. Our annual impairment test was performed as of November 30, 2011 for
all segments. In performing the goodwill impairment tests, the company uses a discounted cash flow approach
corroborated by comparative market multiples, where appropriate, to determine the fair value of its businesses.
Accumulated goodwill impairment losses at December 31, 2011, and 2010, totaled $570 million at the Aerospace
Systems segment.
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